Indiana

Education, From The Capitol To The Classroom

Three Reasons You Shouldn't Worry About The Student Loan Bubble

Students walk between classes on the campus of Indiana University-Purdue University Indianapolis.

Yes, writes Andrew Rotherham in TIME, “we are most likely in the middle of a higher education bubble.”

No, he adds, you shouldn’t be worried about it — at least not enough to skip college altogether.

We broached this subject earlier this week, after a recent New York Times piece highlighted “troubling trends” in the student lending market even if the theories about a higher education bubble are bunk. (And they might be.)

But Rotherham tries to counterbalance what he describes as an “hysteria” about college debt in his TIME column, arguing the NYT may have overstated the problem.

Here are three of Rotherham’s key points:

  • Credit card debt is falling. Much was made of news in 2010 that — at more than $1 trillion — the nation’s student loan debt burden had surpassed its outstanding VISA bill. But that’s only true because we missed the other half of the trend: credit card debt fell 11 percent in 2011 and 7 percent in 2010, as CNN Money reports. At minimum, Rotherham seems to suggest, that should reframe our concerns about student debt levels spiraling out of control.
  • Worry more about the degree’s quality, not the debt’s quantity. As Rotherham writes:

What should worry us more than the national student debt load — which is still not well understood because the data are so murky — is the likelihood that particular categories of students are getting a bad deal. Students at for-profit schools, for instance, are incurring more debt and in many cases getting little or no value for their money. These students tend to come from low-income families and returning military veterans and are the most likely of all college students — public, private, four-year, two-year — to default on their loans and torpedo their credit scores in the process. As a country, we need to do a better job of informing prospective students before they take on large debt loads at a certain school that other good — not to mention less costly — options are available.

  • By and large, college is still worth the debt. “Higher education still makes sense for many Americans,” Rotherham says, “especially for low-income students who the data show clearly have the most to gain by attending college.” (see: thisthisthis, and this.)

As for the bubble itself, Rotherham says he’s confident it will correct as the job market gets better and as students gravitate towards programs that offer the most meaningful degrees.

What do you make of Rotherham’s take on student loans? Is he understating the problem? Or has he hit on something here?

Comments

  • CommonSense17761776

    I like this line:

    “Credit card debt is falling. Much was made of news in 2010 that — at more than $1 trillion — the nation’s student loan debt burden had surpassed its outstanding VISA bill. But that’s only true because we missed the other half of the trend: credit card debt fell 11 percent…”

    What the writer fails to realize is that credit card debt went down because people were BANKRUPTING it, not paying it off. You cannot BK student loans. Stokes, you seem like a shill for the Education Industrial Complex. Some of the articles you refer to in this post suggest the same. Your one-sided biased point of view on this subject suggests you are either naive, not very bright, or in on the scam. The problems with the education, debt levels, and lack of jobs is glaringly obvious.

    • http://twitter.com/StateImpactIN StateImpact Indiana

      Appreciate the comment. On the bankruptcy point, do you have a source to cite on this? If you do, I think it’s a valuable point to bring in the discussion.

      Still… All Rotherham is saying, I think, is that people have measured student debt in its relation to credit card debt because people perceive credit card debt as astronomically high. Whether it’s because credit card debt is going into bankruptcy or because people are paying down their debt, it’s important people change the yardstick against which they measure the level of student loan debt.

      Read a couple more of the posts here. If you still think I’m a shill, let’s discuss it — but these posts discuss exactly “problems with the education (sic), debt levels, and lack of jobs.”
      http://stateimpact.npr.org/indiana/2012/05/14/why-we-should-worry-about-a-bubble-in-student-loans-even-if-it-doesnt-exist/
      http://stateimpact.npr.org/indiana/2012/04/27/how-student-loan-debt-could-undermine-the-college-completion-agenda/
      http://stateimpact.npr.org/indiana/2011/10/19/indiana-student-loan-default-rate-tops-all-but-two-other-states/
      http://stateimpact.npr.org/indiana/2011/08/10/indiana-student-debt-burden-grew-sharply-in-recent-years/

      • CommonSense17761776

        This paragraph in the article is telling:
        http://www.creditcards.com/credit-card-news/state-us-bankruptcy-filing-statistics-1276.php

        Credit card debt and bankruptcies have also moved in opposite directions since the recession. As the recession hit in 2008 and a bad economy lingered in 2009 and 2010, bankruptcies rose. Credit card debt fell sharply during that same period, from a peak of $975.5 billion in 2008 down to $800.5 billion at the end of 2010.
        Now the two have both reversed course. Bankruptcy filings fell by about 182,000 in 2011 compared to 2010. Credit card debt, meanwhile, has started to pick up again: The Federal Reserve’s report on consumer credit shows credit card spending jumped almost 9 percent in November, to a total of $798.3 billion.

        About you being a shill: I was referring to the articles you referenced in your paragraph entitled:

        “By and Large College Is Still Worth the Debt” The income claims make huge assumptions (continued employment over the course of a career, no student debt is factored).

        http://www.youtube.com/watch?v=xCgzLbh1lEo After watching the video, check out some of the comments.

        STEM majors are not as desirable as believed. There are many unemployed nurses and engineers. Check out Northern CA’s (top ten largest economy on the planet) hiring of both.

        The problems in education and student debt are huge. The true systemic problems are not being addressed.

        studentloanjustice.org

        • http://twitter.com/StateImpactIN StateImpact Indiana

          Hi CommonSense, thanks for your response.

          Thanks for the source on credit card debt. The relationship between plastic and bankruptcy is a good one to flesh out, although it stops being a student/education issue at some point, and therefore isn’t necessarily something *I can flesh out. But it’s a point worth further exploration, good find.

          I don’t think any of the reporting I’ve done rejects or dismisses any of the concerns you have — an overreliance on STEM degrees, huge structural problems in the student debt system. If anything, I think the concerns on studentloanjustice.org merit more in-depth and objective reporting. And I went into my reporting (on this story http://stateimpact.npr.org/indiana/2012/04/27/how-student-loan-debt-could-undermine-the-college-completion-agenda/ ) assuming *somebody would try and tell me that college wasn’t worth it anymore.

          But that didn’t happen. For all the problems these people outlined to me, the one concern they didn’t voice was that college wasn’t worth it. In fact, that was the very caveat they had to attach to their gripes about the explosion (“bubble”?) in student debt — ‘As much as I’m scared, I have to say, college is still worth it.’ I’m not just trumpeting Rotherham’s claim above in my post — there are a lot of people who look at this stuff longer and harder than I do who agree with him.

          That doesn’t, I concede, make him right. Maybe AcademicReviser is right — we’re overstating college’s value. But I have to admit to a similar degree of skepticism as Kasparian in the video over the $250K figure. But $250K vs. $750K vs. $1M… I don’t think that number is enough to overrule what those college finance people told me — I do, however, think it supports a hypothesis that the calculus over going to college is and should be changing.

          Exploring that hypothesis as objectively and as transparently as possible is the reason I’m here — it’s what we “shills” do, right?

          • CommonSense17761776

            I am unsure as to whether or not your last question was rhetorical. In case it was not, my answer is “no”…shills don’t explore “that hypothesis as objectively and as transparently as possible…”

            On the flip side, I do appreciate the responses. I think an open and transparent discussion of the issues and problems is really important. After all, it does not happen very often and to see it happen gives me hope that our young people as well as our not-so-young people will understand the ramification of taking on such huge debts for degrees that are largely useless in today’s job market.

            Conversely, I think education is a good thing. An educated society is good for everyone, not just the educated. The problem is the way the masses are getting that education…by borrowing non-dischargeable debt that NEVER goes away. It cannot be refinanced, truth in lending requirements are not present, and the debt grows when that person is not able to make the payments. Additionally, these people need jobs that support their education. The lack of jobs is also part of the real problem. Even if education was free in this country, you still would have too many educated people pissed off because they are unemployed. IMO, this was why the Arab Spring resulted.

            I am not sure who you were speaking to re: college still being worth it. Did they have debt? Were they still students? Was their debt manageable? Did they have jobs that allow them to service it? Have they begun payments on the debt? If so, how long? It is has been my observation that there is a direct proportional relationship between how a person feels about their education and how long they have been paying their debt.

            Either way, we need to figure out, as a people, how to solve the debt financed education mess in this country. If we do not, our economy will continue to limp along as it has the last five years.

          • http://twitter.com/StateImpactIN StateImpact Indiana

            I spoke to a bunch of higher ed policy professors. Maybe they have a financial incentive (their paycheck) to say college is worth it. But they are diving into the data on a deeper level than I do daily. I also spoke to the VP of higher ed at the Lumina Foundation, who — despite his organization having a lot riding on meeting high goals for getting untouched demographics into college for the first time — said the college cost issue was potentially crippling. Though I know one of those profs was a relatively-recent doctoral grad, I didn’t ask about his loan burden. I don’t want to make it seem like they’re blind to the problem, but I think the impression I got from these people was that we’re a long way from “crisis mode.”

            If the NYT headline story is any indication — http://nyti.ms/JDgdEv — the average debt burden is still roughly $23K/student. In Indiana, it’s more like $30K/every degree earned. Ironically, if you want to make the same arguments that AcademicReviser makes about average student debt… The for-profit college debt data really skews that picture. Students from Indiana’s state institutions graduate with debt burdens of closer to $18K/degree earned. http://stateimpact.npr.org/indiana/2011/08/10/indiana-student-debt-burden-grew-sharply-in-recent-years/

            But, that said, Indiana’s student loan default rate is one of the highest in the nation. http://stateimpact.npr.org/indiana/2011/10/19/indiana-student-loan-default-rate-tops-all-but-two-other-states/

            In that story I linked to in my last comment, I talked to a student, Kate, who’s now in more than $100K in debt — $80K in her parents name, $20K in her name. Kate’s dad was unemployed at the time she made a college decision, but the advice her parents and her school gave her was ‘go to college, take out loans, get a degree so you can get a good job so you can pay off those loans.’

            The people at universities I talk to are worried about that assumption in a way not unlike you are — students are either taking on debt without regard to future payment amounts, or that they’re enabling students to ruin themselves financially if they can’t cut it academically.

            I appreciate this conversation!

  • Rcross11

    As the parent of an IU Bloomington student and an IU graduate myself, I am astounded at the increase in the cost of a college education (about 1000% since the late 1970′s) compared to minimum wage, which has increased maybe 300% Max. It is virtually impossible to work one’s way through college now. Someone please explain how college got to be so expensive.

  • Sleepy_0101

    Try looking at the airline industry! The cost now to become a pilot is over $100,000 and the starting pay of an airline pilot is around 16,000-20,000, but every school and loan company that a student pilot talks to is told that the sky is the limit. It’s only after they have put off marriage and kids for ten years and can’t still repay the loans because he has just been furloughed for the second time and now he has to go back to first year pay with a new company.

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